Andrew Hallam
20.12.22

Stock Market Prediction Turns True…So What Do You Do Now?
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Imagine this. A god-like figure with a giant hammer says, “You must stuff your portfolio with stocks representing fast growing companies or stuff your entire portfolio with stocks representing slow-growing companies. You must choose one of these styles and then stick to it for life.”

Which would you pick?

I would pick stocks of slow-growing companies.

You might think I’m crazy, but slow-growing companies tend to be cheap. They’re under-rated, under-the-radar and under-utilized by most investors. They’re also known by another name: value stocks.

Growth stocks are the opposite. They tend to be over-rated and over-utilized by most investors. They can do well, for a time. But during most rolling decade-long periods, low-cost value stocks (as a group) thrash the aggregate performance of fancy growth stocks.

Unfortunately, the more infatuated a generation becomes with growth stocks, the harder the hammer hits them.

In early 2021, that popularity gap between growth stocks and value stocks was broader than it has ever been before. At the time, I warned investors about high-flying growth stocks, especially Cathie Wood’s ARK Innovation ETFs. Over the previous couple of years, it was the world’s best performing ETF. But I believed it would become the worst.

Fast-forward several months. From February 2021 to December 15th, 2022, Cathy Wood’s ARK Innovation ETF (ARKK) plunged 76 percent. In other words, if someone bought it in early 2021 (which many did) that money would need to gain 326 percent just to break even.

In my April 2021 column, I urged investors to avoid stockpiling money into popular growth stocks. If you had to pick a single factor, I recommended value stocks instead.

I wrote:

“Swissquote investors who want to put value to work could buy the iShares Edge MSCI World Value Factor ETF (IWVL)… If you want specific U.S. stock exposure, you could buy the iShares Edge USA Value Factor ETF (IUVL)…If you want to focus on European value stocks, the iShares Edge MSCI Europe Value Factor ETF (IEVL) could fit the bill.”

From the date of that story’s publication (April 2021), here are the returns of several popular U.S. growth stocks and Cathie Wood’s ARK Innovation fund.

Popular Stocks Hammer Investors
April 2021 – December 15, 2022

_{Source: Morningstar
*Performance in USD}

Over that tough period for the markets, value stocks held up better. In fact, they crushed growth stocks.

Recommended Value Stock ETFs
April 2021 – December 15, 2022

_{Source: Morningstar
*Performance in USD}

I’m not suggesting you should wait for me to make another prediction. After all, nobody can predict the market with any degree of consistency.

What’s more important is that we shouldn’t follow herds. It might feel good, at first, but it’s easy to get trampled.

Instead, build a globally diversified portfolio of ETFs. It will include value and growth stocks.

But if that giant god-like guy offers an ultimatum, pick value over growth. And then don’t get swayed.

Andrew Hallam is a Digital Nomad. He’s the bestselling author Balance: How to Invest and Spend for Happiness, Health and Wealth. He also wrote Millionaire Teacher and Millionaire Expat: How To Build Wealth Living Overseas

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